Health Insurer’s ‘Most Favored Nation’ Clauses Challenged

Both the federal government and the State of Michigan filed suit this week against Blue Cross & Blue Shield of Michigan, alleging that the insurer’s “most favored nation” clauses with hospitals violate the Sherman Antitrust Act and the Michigan Antitrust Reform Act. The Justice Department did not indicate if there are plans either to investigate or to take legal action against health plans in other states; the outcome of the suit, however, will likely affect how the Blues and other health insurance companies contract with hospitals throughout the nation.

Just as it sounds, a most favored nation clause gives one provider an advantage over the rest of the market. In this case, the Justice Department claims that Blue Cross includes two types of clauses in 70 of its 131 contracts with general acute care hospitals in the state. The first type requires that the hospital charge Blue Cross less than it charges other insurers. The second requires that the hospital charge Blue Cross no more than it charges others.

How these clauses play out in the marketplace adds up to a restraint of trade, according to the lawsuit. The measures result in higher hospital costs for competitors — Blue Cross can potentially negotiate their own rate to a level that is untenable for smaller plans to match or exceed. The higher rates for every plan translate into higher premiums. Blue Cross, in effect, has rigged the system to keep competitors out and consumer costs high. The practices, the complaint alleges, have been in place since at least 2007.

The health plan has responded that they are negotiating the lowest possible rate for their members. The plan has a 60 percent market share in the state. In Florida, Blue Cross Blue Shield has only 27 percent of the market share.